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Technology Round Up - November 2, 2011
There have been a number of noteworthy developments in the technology space recently. They will likely have a material impact on the companies in this sector and the markets they serve.
Apple’s New iPhone
Apple (AAPL) recently released its latest-generation iPhone, the iPhone 4S. This touchscreen slate smartphone combines the iPod with mobile phone and Internet applications. Its exterior looks the same as the iPhone 4, but it also hosts a range of improved hardware specifications and software updates. The iPhone 4S features an improved camera system and cloud sourced data. Also, the 4S has Siri, a talking assistant that recognizes voice questions and commands.
Following the buildup, some customers who were expecting an iPhone 5 were disappointed. Unfulfilled expectations have included a thinner phone with a larger screen. It remains to be seen if this will open the door to rivals such as Samsung Electronics. That said, pre-order figures were encouraging. Apple has announced that four million units were sold in the first three days following release. The 16-month wait from the introduction of the iPhone 4 and the iPhone 4S may have contributed to the recent strong sales, as some customers were likely waiting until the new phone came out to make a purchase.
Recent Troubles for Research In Motion
Research In Motion (RIMM) has experienced a couple of important setbacks in recent weeks. Users in the United States and Canada have filed lawsuits against the company, following a service outage on BlackBerry devices that lasted several days. The failure left millions of BlackBerry users without access to browsing, email, or instant messaging. Plaintiffs with an active service agreement are seeking damages that include refunds/cash compensation for loss of service. In addition,
The company has delayed a software upgrade for the PlayBook tablet computer until February. Research In Motion announced that it will wait to introduce BlackBerry PlayBook OS 2.0 until it is confident that it will satisfy its developers, enterprise customers, and end-users. This marks the latest in a string of delays for PlayBook applications. Furthermore, the updated version will not feature the Messenger application, which has been popular with younger users. Still, the company is working on developing a solution for BlackBerry Messenger.
These latest challenges mark setbacks in Research In Motion’s effort to compete with Apple’s iPhone and iPad, and devices which use Google’s (GOOG) Android operating system.
Sony Buys Out Ericsson
Sony (SNE) will take will take over its mobile joint venture with LM Ericsson (ERIC) for 1.05 billion euros ($1.5 billion). This purchase will give Sony ownership of certain handset patents, and we expect the company will reduce expenses in the Sony Ericsson business, too. Moreover, it will allow Sony to better integrate smartphones and other devices with its own content. The company will look to use such music and video content to make itself more competitive with smartphone and tablet makers like Apple and Samsung. Smartphones are becoming increasingly important for Sony, as a greater number of people are choosing to view content and connect to the Internet on them.
A Shopping Spree For Google
Google spent over $1.4 billion to acquire 57 companies during the first three quarters of the year. The company purchased restaurant review publisher Zagat Survey for $151 million. The acquisition of this restaurant brand means Google can feature more restaurant reviews and recommendations on its own site, and allows it to compete more effectively in this market with Yelp. The company also purchased Daily Deals for $114 million. Daily Deals is an online discount service in Europe. These moves are in addition to the company’s agreement to acquire Motorola Mobility (MMI) for $12.5 billion in cash ($40 per share), which was announced in August. Motorola Mobility has been an Android partner, and this deal will allow Google to further advance the Android platform. The purchase of Motorola Mobility will allow Google to strengthen its patent portfolio, and enable it to better fend off litigation threats from competitors. This would help protect the Android operating system, and the companies that use it, from potential litigation.
Netflix’s Troubles Continue
Meanwhile, shares of Netflix (NFLX) dropped considerably following the company’s third-quarter earnings release. Although Netflix reported significantly higher revenues and share earnings for the period, investors were troubled by the pace of customer defections. The company finished the third quarter with 23.8 million domestic subscribers, a decline of roughly 800,000 during the period. This was the result of greater-than-expected cancellations and reduced customer acquisitions.
The stock has declined precipitously since mid-summer, when the company announced a decision to split its service into two separate plans; a pure streaming offering and a DVD-by-mail membership. The company then announced plans to spin-off its DVD-by-mail service into an entirely new business, named Qwikster. All of this angered customers and unnerved investors. In response, the company backtracked on this initiative and has eliminated its plans for Qwikster, keeping both its services under the Netflix umbrella.
Weakness will likely persist in the near term. Netflix expects DVD subscriptions to decline sharply in the fourth quarter, in response to higher prices. On the bright side, the weekly rate of DVD cancellations has been declining, and the company expects subscriptions will fall more modestly in the future. Streaming cancellations will likely continue in the short run, though net additions may well resume in the coming months. Netflix now anticipates share earnings of $0.36-$0.70 in the fourth quarter, compared to the $0.87 earned in the prior-year period. Furthermore, the company expects a loss for the first quarter of 2012, due to costs associated with its expansion into the United Kingdom. We remain optimistic about the company’s long-term picture, though the near-term outlook remains uncertain. Share price volatility should remain the norm in the coming months.
Finally, investors have been encouraged in recent weeks about talk that Yahoo! (YHOO) may be acquired, and several potential suitors have emerged. Alibaba’s Chief Executive Jack Ma has indicated that he may be interested in buying the company, should the opportunity present itself. AOL (AOL) Chief Tim Armstrong has been reportedly trying to build shareholder support for a merger with Yahoo!. Google has also been reportedly looking at a possible deal. Several private equity firms may be interested, too. This isn’t the first time that the company has been the target of an acquisition. Several years ago, Microsoft (MSFT - Free Microsoft Stock Report) tried to purchase Yahoo!, but the deal fell through. Readers are reminded that nothing substantive has yet been disclosed by any of the parties involved. Current speculation on a potential deal is just that.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.